Viewing offline content

Limited functionality available

Dismiss
Deloitte Middle East
  • Services

    What's New

    • Deloitte175

      Join us for a celebration of 175 years of making an impact that matters.

    • Building the Resilient Organization

      2021 Deloitte Global resilience report

    • 2020 Global Gender Impact Report

      A collection of Butterfly Effect stories highlighting how our Deloitte professionals are positively impacting the lives of women and girls around the world

    • Audit & Assurance

      • Assurance
    • Consulting

      • Strategy, Analytics and M&A
      • Customer and Marketing
      • Business Operations
      • Human Capital
      • Enterprise Technology & Performance
    • Financial Advisory

      • Mergers & Acquisitions
      • Forensic
      • Real Estate
      • Turnaround & Restructuring
    • Risk Advisory

      • Strategic & Reputation Risk
      • Regulatory Risk
      • Financial Risk
      • Operational Risk
      • Cyber Risk
    • Tax

      • Global Business Tax Services
      • Indirect Tax
      • Global Employer Services
    • Deloitte Private

      • Family Enterprise
    • Legal

    • Sustainability

  • Industries

    What's New

    • Deloitte perspectives

      Leadership perspectives from across the globe.

    • Deloitte Insights App

      Our thought leadership and Dow Jones news, now at your fingertips

    • Future of Mobility

      Learn how this new reality is coming together and what it will mean for you and your industry.

    • Consumer

      • Automotive
      • Consumer Products
      • Retail, Wholesale & Distribution
      • Transportation, Hospitality & Services
    • Energy, Resources & Industrials

      • Industrial Products & Construction
      • Mining & Metals
      • Oil, Gas & Chemicals
      • Power, Utilities & Renewables
    • Financial Services

      • Banking & Capital Markets
      • Insurance
      • Investment Management
      • Real Estate
    • Government & Public Services

      • Civil Government
      • Defense, Security & Justice
      • Health & Social Care
      • Transport
    • Life Sciences & Health Care

      • Health Care
      • Life Sciences
    • MENA Sovereign Wealth Funds

    • Technology, Media & Telecommunications

      • Technology
      • Telecommunications, Media & Entertainment
  • Insights

    Deloitte Insights

    What's New

    • Deloitte Insights Magazine

      Explore the latest issue now

    • Deloitte Insights app

      Go straight to smart with daily updates on your mobile device

    • Weekly economic update

      See what's happening this week and the impact on your business

    • Strategy

      • Business Strategy & Growth
      • Digital Transformation
      • Governance & Board
      • Innovation
      • Marketing & Sales
      • Private Enterprise
    • Economy & Society

      • Economy
      • Environmental, Social, & Governance
      • Health Equity
      • Trust
      • Mobility
    • Organization

      • Operations
      • Finance & Tax
      • Risk & Regulation
      • Supply Chain
      • Smart Manufacturing
    • People

      • Leadership
      • Talent & Work
      • Diversity, Equity, & Inclusion
    • Technology

      • Data & Analytics
      • Emerging Technologies
      • Technology Management
    • Industries

      • Consumer
      • Energy, Resources, & Industrials
      • Financial Services
      • Government & Public Services
      • Life Sciences & Health Care
      • Technology, Media, & Telecommunications
    • Spotlight

      • Deloitte Insights Magazine
      • Press Room Podcasts
      • Weekly Economic Update
      • COVID-19
      • Resilience
  • Careers

    What's New

    • Millennial Survey 2022

      Gen Zs and millennials are striving for balance and advocating for change.

    • Candidate Profile

      After applying for a job in this country, you can access/update your candidate profile at any time.

    • Job Search

    • Students

    • Experienced Hires

    • Executives

    • Life at Deloitte

    • Alumni

    • Diversity and Inclusion

  • XE-EN Location: XE-English  
  • Contact us
  • XE-EN Location: XE-English  
  • Contact us
    • Dashboard
    • Saved items
    • Content feed
    • Profile/Interests
    • Account settings

Welcome back

Still not a member? Join My Deloitte

Turkey: Growth is the headline, but inflation is a worry

by Akrur Barua
  • Save for later
  • Download
  • Share
    • Share on Facebook
    • Share on Twitter
    • Share on Linkedin
    • Share by email
Deloitte Insights
  • Strategy
    Strategy
    Strategy
    • Business Strategy & Growth
    • Digital Transformation
    • Governance & Board
    • Innovation
    • Marketing & Sales
    • Private Enterprise
  • Economy & Society
    Economy & Society
    Economy & Society
    • Economy
    • Environmental, Social, & Governance
    • Health Equity
    • Trust
    • Mobility
  • Organization
    Organization
    Organization
    • Operations
    • Finance & Tax
    • Risk & Regulation
    • Supply Chain
    • Smart Manufacturing
  • People
    People
    People
    • Leadership
    • Talent & Work
    • Diversity, Equity, & Inclusion
  • Technology
    Technology
    Technology
    • Data & Analytics
    • Emerging Technologies
    • Technology Management
  • Industries
    Industries
    Industries
    • Consumer
    • Energy, Resources, & Industrials
    • Financial Services
    • Government & Public Services
    • Life Sciences & Health Care
    • Tech, Media, & Telecom
  • Spotlight
    Spotlight
    Spotlight
    • Deloitte Insights Magazine
    • Press Room Podcasts
    • Weekly Economic Update
    • COVID-19
    • Resilience
    • XE-EN Location: XE-English  
    • Contact us
      • Dashboard
      • Saved items
      • Content feed
      • Profile/Interests
      • Account settings
    16 February 2018

    Turkey: Growth is the headline, but inflation is a worry

    16 February 2018
    • Akrur Barua India
    • Save for later
    • Download
    • Share
      • Share on Facebook
      • Share on Twitter
      • Share on Linkedin
      • Share by email
    • Growing . . . and fast
    • A quarter worth remembering
    • Household spending will likely continue to strengthen
    • Manufacturing growth and tourism revival to the economy’s rescue
    • Better not lose sight of inflation and the current account

    Turkey’s economy is on the upswing, buoyed by strong private consumption, investments, and exports. While the short-term outlook seems promising, rising inflation and a deteriorating current account could derail the growth story.

    Growing . . . and fast

    Learn more

    Subscribe to the Economic Outlook newsletter

    Explore the entire Economics collection

    Turkey’s economy is back in business. After a healthy growth in the first half of 2017, real GDP shot up by the fastest pace in about six years in Q3.1 Private consumption, investments, and exports aided growth during the quarter, highlighting a near-perfect scenario of strong domestic and external demand. With the economy on a strong footing since early 2017, the labor market has improved, and consumer and business sentiments have edged up. And that’s not all. Key production and sales indicators suggest that the economy is poised for a healthy growth in 2018 as well—that is, if rising inflation and a deteriorating current account do not gate-crash the party.

    A quarter worth remembering

    The economy grew by 11.1 percent year over year in Q3 2017, up from a 5.4 percent rise in Q2. Growth was broad based with consumers and businesses both adding to economic activity during the quarter. Households led the charge, increasing spending by 11.7 percent, more than thrice the corresponding figure in Q2 (see figure 1). While a low base aided spending growth in Q3, a strong labor market and continued benefits from fiscal sops, such as tax discounts and cheap credit, also supported household consumption.2

    Aided by consumers and businesses, GDP growth shot up in Q3 2017

    Investments too increased in Q3 with gross fixed capital formation expanding by 12.4 percent. Encouragingly, investment in machinery and equipment rose by 15.3 percent after declining for four straight quarters. Construction growth, despite moderating during the quarter, was healthy at 12.0 percent. On the external front, reviving global trade and demand from Europe meant that exports shone in Q3 as well. However, high growth in imports during the quarter due to strong domestic demand dented the contribution of net exports to overall GDP growth.

    Household spending will likely continue to strengthen

    Policy makers will likely be encouraged by reviving household spending, which had been muted since the failed coup of July 2016. Slowing spending by consumers had been a worry, given its indirect impact on demand for businesses and hence, production and investment. Such concerns have likely been assuaged by third-quarter figures. Households have propped up spending on both goods—durable and nondurable—and services. In fact, residents’ spending on durable goods shot up by 31.1 percent during the quarter.

    The momentum in household spending is likely to continue, although growth may peter down to more manageable levels in the near term. Consumers can benefit from a decline in unemployment and a rise in the participation rate. After touching 12.0 percent in December 2016, the unemployment rate (three-month average) has been on a downward trajectory, declining further to 10.3 percent in October 2017. Youth unemployment has also declined during this period (see figure 2). Wages and salaries have consequently picked up, with low-income households likely to benefit further from a rise in the minimum wage in January. No wonder then that consumer confidence is up, even though the figure still indicates net pessimism.3

    The labor market has been reviving after hiccups in 2016

    Manufacturing growth and tourism revival to the economy’s rescue

    Reviving consumer demand is good news for businesses. Manufacturing and services, for example, had a good Q3 2017, growing by 15.2 percent and 20.7 percent, respectively. Latest data indicates that the momentum in manufacturing has continued into Q4, with output rising by 7.4 percent in both October and November. The uptick in production has aided a broad improvement in capacity utilization since mid-2016, despite slight declines in December 2017 and January 2018.

    Businesses have also benefitted from strong external demand. Exports to key economies such as the United States, Germany, and France have been steadily going up. And a rise in foreign tourist arrivals is boosting Turkey’s tourism industry (see figure 3). After being in the doldrums for much of 2015 and 2016, total tourism income (in US dollars) expanded for the first time in 27 months in April 2017 (1.4 percent); since then, it has steadily gone up, rising by as much as 37.6 percent in Q3.

    With demand reviving and production picking up, business sentiment has turned more optimistic, especially about near-term economic conditions.4 If this momentum sustains, private sector investments are likely to pick up in the medium term. This can not only aid short-term economic activity, but also contribute to long-term potential GDP growth.

    Revival in tourism is a shot in the arm for the economy

    Better not lose sight of inflation and the current account

    The two likely headwinds for the economy are inflation and external balances. After moderating to some extent in the first half of 2017, headline inflation has been on its way up, touching a 14-year peak in November. It edged slightly lower in December, but, at 11.9 percent, is still much above the Central Bank of the Republic of Turkey’s (CBRT) 5.0 percent target. External balances, on the other hand, have been deteriorating since late 2015 with the current account deficit likely to widen further in 2017 from 3.8 percent of GDP in 2016. A widening current account is expected to put further pressure on the lira, which has been weakening since September 2017 against the US dollar after recovering some lost ground earlier in the year (see figure 4).

    Lira depreciation has added to domestic inflationary pressures

    Lira weakening can add to price pressures by pushing up imported inflation. This puts CBRT in a spot—hiking interest rates to keep inflation and lira depreciation in check risks slowing the growth momentum. In its December 2017 meet, CBRT appears to have gone in for a relatively dovish stand by hiking the late liquidity window rate by 50 basis points, lower than what analysts expected.5 CBRT will know from experience that falling behind the rate curve may prop up growth for a quarter or two, but may not be in the economy’s best interests in the medium term. Not to mention the credibility at stake for monetary policy.

    Author

    Akrur Barua is an economist with the Research & Eminence team. He is located in Mumbai.

    Acknowledgements

    Cover image by: Tushar Barman

    Endnotes
      1. Turkish Statistical Institute, sourced from Haver Analytics in January 2018. Unless otherwise stated, all data is sourced from Haver Analytics. View in article

      2. Akrur Barua, Turkey: Uncertainty giving way to growth, Deloitte University Press, August 9, 2017. View in article

      3. Central Bank of the Republic of Turkey, Consumer tendency survey and consumer confidence index, sourced from Haver Analytics in January 2018. View in article

      4. Central Bank of the Republic of Turkey, Business tendency survey and real sector confidence index, sourced from Haver Analytics in January 2018. View in article

      5. Selcan Hacaoglu, “Turkey raises a key rate by less than expected; lira slumps,” Bloomberg, December 14, 2017; Reuters, “ Turkish central bank hikes late liquidity window rate as inflation rises,” December 14, 2017. View in article

    Show moreShow less

    Topics in this article

    Economics , Eurozone , Europe Middle East Africa (EMEA) Economics

    Deloitte Consulting

    View
    Download Subscribe

    Related

    img Trending

    Interactive 3 days ago

    Akrur Barua

    Akrur Barua

    Manager | Deloitte Services India Pvt. Ltd.

    Akrur Barua is an economist with the Research & Insights team. As a regular contributor to several Deloitte Insights publications, he often writes on emerging economies and macroeconomic trends that have global implications like monetary policy, real estate cycles, household leverage, and trade. He also studies the US economy, especially demographics, labor market, and consumers.

    • abarua@deloitte.com
    • +1 678 299 9766

    Share article highlights

    See something interesting? Simply select text and choose how to share it:

    Email a customized link that shows your highlighted text.
    Copy a customized link that shows your highlighted text.
    Copy your highlighted text.

    Turkey: Growth is the headline, but inflation is a worry has been saved

    Turkey: Growth is the headline, but inflation is a worry has been removed

    An Article Titled Turkey: Growth is the headline, but inflation is a worry already exists in Saved items

     
    Forgot password

    To stay logged in, change your functional cookie settings.

    OR

    Social login not available on Microsoft Edge browser at this time.

    Connect Accounts

    Connect your social accounts

    This is the first time you have logged in with a social network.

    You have previously logged in with a different account. To link your accounts, please re-authenticate.

    Log in with an existing social network:

    To connect with your existing account, please enter your password:

    OR

    Log in with an existing site account:

    To connect with your existing account, please enter your password:

    Forgot password

    Subscribe

    to receive more business insights, analysis, and perspectives from Deloitte Insights
    ✓ Link copied to clipboard
    • Contact us
    • Search Jobs
    • Submit RFP
    Follow Deloitte Insights:
    Global office directory Office locations
    XE-EN Location: XE-English  
    About Deloitte
    • Newsroom
    • Deloitte events
    • Our blog collections
    • Press releases
    • Press contacts
    • Corporate Responsibility & Sustainability
    • Report an ethics complaint
    Services
    • Audit & Assurance
    • Consulting
    • Financial Advisory
    • Risk Advisory
    • Tax
    • Deloitte Private
    • Legal
    • Sustainability
    Industries
    • Consumer
    • Energy, Resources & Industrials
    • Financial Services
    • Government & Public Services
    • Life Sciences & Health Care
    • MENA Sovereign Wealth Funds
    • Technology, Media & Telecommunications
    Careers
    • Job Search
    • Students
    • Experienced Hires
    • Executives
    • Life at Deloitte
    • Alumni
    • Diversity and Inclusion
    • About Deloitte
    • About Deloitte in the Middle East
    • Privacy
    • Terms of use
    • Cookies
    • Avature Privacy

    © 2022. See Terms of Use for more information.

    Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see About Deloitte to learn more about our global network of member firms.